Lumentum consolidates more of optical market with $1.8B Oclaro deal

Deal-making
Lumentum fires a shot toward consolidating more of the optical components market with its proposed acquisition of Oclaro. (Pixabay/geralt)

SAN DIEGO—Lumentum, an optical component vendor, lit up the halls at this year’s OFC 2018 show by reaching a deal to acquire Oclaro for $1.8 billion.

Under the terms of the agreement, which has already gotten the green light of the boards of both companies, Lumentum will acquire Oclaro’s outstanding stock.

For each share of Oclaro stock held, Oclaro stockholders will be entitled to receive $5.60 in cash and 0.0636 of a share of Lumentum common stock, subject to the terms of the definitive agreement.

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"Joining forces with Oclaro strengthens our product portfolio, broadens our revenue mix, and positions us strongly for the future needs of our customers,” said Alan Lowe, president and CEO of Lumentum, in a release. “Oclaro brings its leading Indium Phosphide laser and Photonic Integrated Circuit and coherent component and module capabilities to Lumentum.” 

By acquiring Oclaro, Lumentum will become one of the largest optical component manufacturers.

"The long-awaited industry consolidation may have just started with Lumentum (deal)," said Troy Jensen, a Piper Jaffray analyst, in note to the firm’s clients.

The transaction values Oclaro at $9.99 per share or approximately $1.8 billion in equity value, based on the closing price of Lumentum's stock on March 9, 2018, of $68.98. The transaction value represents a premium of 27% to Oclaro's closing price on March 9, 2018, and a premium of 40% to Oclaro's 30-day average closing price. Oclaro stockholders are expected to own approximately 16% of the combined company at closing.

Upon completion, Lumentum said it expects the acquisition to generate more than $60 million of annual run-rate synergies within 12 to 24 months of the closing and be immediately accretive to non-GAAP earnings per share.

Lumentum said it will fund the cash consideration with a combination of cash on hand from the combined companies' balance sheets and $550 million in debt financing. 

After gaining approval from Oclaro's stockholders, antitrust regulatory approval in the US and China and other customary closing conditions, the deal is expected to close in the second half of this year.

Also, when the acquisition closes, one member of Oclaro's board will join Lumentum's board.

It appears investors liked this marriage proposal, as Oclaro's stock rose $2.15, or 27.45%, to $10 during Monday trading on the Nasdaq stock market. Likewise, Lumentum’s stock rose 4.46% to $72.05.